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July

Sterling range bound

Published: Tuesday 03 July 2018

  • Australian base rate on hold for 21st meeting in a row
  • Euro poised as German politics dominates the news
​​By David Johnson
 
Trade is still the overall concern of the markets. This Friday is the self-imposed deadline for the US to implement 25% tariffs on $34 billion worth of Chinese imports into the US. China has announced it will retaliate and, if that were the only story it would be worrying but it isn’t. The US is falling out with the EU over trade tariffs and is being a pain in the backside over the North American Free Trade Agreement as well. Trump has all the hallmarks of a playground bully who is taking on everyone at the same time. Maybe China will bloody his nose but the EU seems too keen to appease.
 
Monday was a quiet one for data, so let’s skip forward to the Reserve Bank of Australia. They left their base rate on hold again last night. That marks the 21st meeting at which the base rate has been kept at 1.5%; a record low for a record amount of time. They are probably right to stay low but may have to move lower still after data showed a sharp drop in building approvals when the markets were expecting no change. That 3.5% drop followed a 5% drop last month and that isn’t good news for the Aussie economy. I suspect the GBPAUD rate would have pushed higher if Sterling had any strength.
 
Speaking of which, the Pound remains mid-range-ish against the Euro (€1.13 or thereabouts) and around the USD1.3150 level. It doesn’t seem to be capable of making any headway while politicos wrangle for gains amidst the Brexit horse trading. Theresa May is either deceptively astute or she is being painted into a corner by her own colleagues. If you could examine that in a 1,000 word essay and have that on my desk by Friday, that would be great. Certainly every newspaper has a view or six. We will get an overview of construction sector activity today, so that could shuffle the Pound but, unless the number is astonishing, that shuffle may be just a shimmy.
 
The Euro is also mid-range and the data diary is limited to this morning’s Spanish unemployment data, which was positive, plus retail sales and producer price data for the Eurozone as a whole. Obviously the situation in Germany, where Angela Merkel is clutching onto her coalition by her fingertips is a real worry for the Euro. The pressure on the German Chancellor is both domestic and foreign as Italy pours scorn on Germany’s control over the EU. It is quite tetchy I must say.
 
This afternoon brings US durable goods and factory orders data and the forecasts are for a slight recovery in both. That would steady the ship a little whilst Captain Trump tries to ram everything in the waters around him.
 
And the Middle East has a new weapon it seems. Brigadier General Gholam Reza Jalal in the Iranian army, claims Israel is stealing the moisture from clouds heading for Iran. He says they have studied the matter for four years and they are, “Faced with the cases of cloud theft and snow theft.” It could be that or maybe…just a thought…it could be what we call ‘Rain’.
 
Oh and England has a World Cup game tonight…Yay!
Quote
 
"A government that robs Peter to pay Paul can always depend on the support of Paul."
George Bernard Shaw.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Construction Purchasing Managers' Index 52.5 52.6
EUR 10:00 EU: Producer Price Index 0.0% 0.4%
EUR 10:00 EU: Retail Sales 0.1% 0.1%
CAD 14:30 Canada: Manufacturing Purchasing Managers' Index 56.2 56.2
USD 15:00 US: Factory Orders -0.8% 0.1%

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